Alistair Darling: Sort out the euro or we are heading for global crisis

The financial crisis in Europe could drag the world into deeper chaos than the global banking collapse of 2008, former chancellor Alistair Darling has warned.

Warning: Alistair Darling (Picture: PA)

Leaders need to act more quickly to face up to the toxic debt held by lenders in their nations, he said.

Mr Darling, who ran Britain’s economy during the international banking meltdown four years ago, said the stakes were now ‘so much higher’.

He told Sky News: ‘I suspect there’s an awful lot of banks in parts of Europe now that are stuffed full of loans that are going to go bad.

‘Unless you do something about that – either maybe writing them off, or perhaps looking at the Irish or American system where you took the bad debts out – unless you can make sure the banking system is sound and stable, the risk is you get an uncontrolled run on banks.’

Spain’s fourth largest lender Bankia has said it needs £12billion from the Madrid government after its shares were suspended following losses of £2.38billion last year.

‘The obvious question that people will ask is who’s next?, added Mr Darling. Last week, former Labour prime minister Gordon Brown issued a similar warning about the state of Europe’s finances.

Business secretary Vince Cable yesterday said it was ‘inappropriate’ for Britain to be ‘lecturing’ the eurozone.

And deputy prime minister Nick Clegg tried to dampen ‘apocalyptic’ media reports after home secretary Theresa May said plans are in place to restrict borders if the euro breaks up.

But insurer Lloyd’s of London has reduced its exposure to the eurozone ‘as much as possible’.